When folks are asked “What is wealth management?” the most common answer given is that “It has something to do with investing.” This is partly correct, however, there is much more to wealth management than simply investing. wealth management is comprised of three components namely investment management, risk management and estate planning. Let’s look at these.
Investment management is the process of growing your wealth using various investment management tools and strategies. This is the process where your advisor assists you in determining the where, how and why your money should be invested. The where is what account type your investments should be held in?
Corporate accounts, RRSPs, RRIFs, LIRAs, LIFs, RESPs, RDSPs, TFSAs, In-trust or a Non-registered/cash accounts. All these accounts serve different purposes.
The how is the amount you should invest and how often. One can invest a lump sum, monthly, quarterly or annually. How much you invest is important as certain account types have maximum limits, for example TFSAs have a $5,500 maximum for 2013. How much one invests can also depend on what you are trying to achieve, for example, what size of a tax deduction do you wish to receive by making a contribution to your RRSP?
The why are the reasons you should consider investing in the first place. The why is predominantly goal based. The goal might be a certain standard of living that you wish to maintain in retirement, saving for a child’s education, leaving a legacy to your kids, a new home or an exotic vacation on your bucket list.
Risk management is the process of protecting your wealth that you have accumulated or future wealth (income) that has not yet been received. A good example of this is if you happened to get sick or injured on a foreign vacation and you neglected to purchase travel insurance. Do you think your medical bills might affect your wealth? That , simply, is risk management, the protection of your wealth from unforeseen circumstances. Other risk management categories are:
Life Insurance, disability Insurance, critical illness insurance, long term care and health insurance.
Estate planning is the process of transferring your wealth, as efficiently as possible, from one spouse to the other and/or to the next generation. There are many factors involved in sound estate planning:
Make sure you assets are structured correctly to avoid probate fees using joint accounts and beneficiary designations where possible. Be sure to have all your legal documents in place, the most important ones being a will, enduring power of attorney and a representation agreement.
In conclusion wealth management is the process of growing, protecting and transferring your wealth in the most efficient manner possible.
Please remember to always consult your advisor before taking any action.
Stuart Kirk is a Wealth Advisor with Precision Wealth Management Ltd. The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd. For comments or questions Stuart can be reached at firstname.lastname@example.org or 250-954-0247. Website www.precisionwealth.ca